I’m continuing to think about the question of value creation in web3…

According to the World Bank, global GDP grew from $71.3 trillion in 2008 to $86.3 trillion in 2018, an increase of 21.3%. This growth has been driven by the increased efficiency and collaboration enabled by Web 2.0 technologies, as well as the increased access to information and services that it has provided.

Many expect web3 to deliver similar levels of value creation, but as I asked in a previous article, what kind? Maybe a better question is what kinds?

While not a definitive answer to this question, I think there are 4 different dynamics ranging from macro-economic to meta-economic that could enable the same - or possibly greater levels of value creation.

1. Redistribution accelerates growth. The promise of web3 is a redistribution of value and by extension the reduction of inequality. While this hasn’t been the pattern we’ve seen with some early web3 companies and investors, web3 purists are building equitable ownership into their technical infrastructure. As Steve Galaveski points out:

   Most successful projects have allocated less than 20% of their token pool for investors and in some cases less than 10% — with the bulk of tokens reserved for the general public, contributors, advisors, the core team, and staking rewards.

   It’s worth noting that the total GDP growth from 2008 - 2018 was built largely on the backs of China (40% of total GDP growth) and India (17% of total GDP growth) becoming developed economies. This is important because while the data on the relationship between inequality and growth are inconclusive, most economists agree that inequality is slowing growth in our economy and other economies that look like ours.

   Income inequality in the United States is suppressing growth in aggregate demand (spending by households, businesses, and governments) by shifting an ever larger share of income to rich households that save rather than spend. This rise in inequality has been overwhelmingly driven by the failure of pay for typical American workers to keep pace with economywide productivity growth. EPI estimates that rising inequality has slowed growth in aggregate demand by 2 to 4 percentage points of GDP annually in recent years.

2. Ownership builds stronger businesses. The web 2.0 model was epitomized by the idea of blitzscaling. Many companies took this as a call to separate profit from growth and spend on customer acquisition, hoping that scale would lead to solvency. In the web3 world, founders are more often bootstrapping and using tokens and member referrals to scale. Perhaps not surprisingly, early evidence suggests these businesses are healthier overall. Writing about Axie Infinity in the “Ownership Economy” the Variant team says:

   Powered by a play-to-earn mechanism in which players earn tokens in the game that can be exchanged for their local currency, Axie Infinity has achieved significant scale, with over $1 billion in cumulative revenue and nearly 3 million daily active users. And the game’s player retention is dramatically higher than that of traditional mobile games. Axie Infinity’s player retention has remained strong and consistent over time, suggesting that engagement is not simply a function of the game’s novelty.

3. Participation increases value contribution. The rise of an ownership economy blurs the line between consuming and creating, but beyond that DAOs, smart contracts and other web3 protocols enable participation in many communities at once. One outcome of this that we have forecast in recent trajectory planning work is a series of shifts that will enable value contribution and creation outside of a 1 worker: 1 job situation:

   New technologies enable micro-contributions to a variety of different fields. Breaking down the idea of monolithic employment.

   Citizenship and country of residence become less of a factor in choosing employment. As technology improves access to the best talent and the best opportunities.

   Communities take shared ownership over housing and co-invest in renewal and revitalization.

   The shared ownership model extends beyond housing to energy and other necessary infrastructure.

4. Capturing the value that isn’t captured through traditional economics. As Kate Ratworth pointed out, traditional economics is particularly bad at measuring the the value of things that actually matter. Talking about Doughnut Economics she said:

   The measurement of GDP goes back to 1930s America. Until the Wall Street Crash of 1929, the economy had been measured in tonnes of grain and steel, and because of the crash- economists and politicians decided they wanted some grip over the scale of output of the economy- so they turned to a brilliant young scientist called Simon Kuznets and asked him how they should be measuring economic output. His answer was published in 1930s- he figured out a way to add-up all the tonnes of grains and steel and create a national income figure. He gave the caveat that it would scarcely be taken as the measure of welfare of a nation because it didn’t include all the value created in a community, all the unpaid caring work at home, and only measured what was sold- not what was used-up!

   Spurred by people like Kate, there has been a lot of work to build better economic models that put sustainability and wellbeing on the balance sheet, but the advent of web3 has enabled the building of economies that capture hidden or neglected value that can’t be monetized with fiat currency. One example of this is Regenerative Finance or ReFi:

   It's a way of thinking about the economy that takes into account the negative externalities that have often been ignored by traditional capitalism. This includes things like environmental destruction, social inequality and financial instability.

   Another example would be local currencies that are being built on blockchain but the most separate forms of value are the in-game currencies and community-based tokens that are being developed. Many of these “monetize” community values and goodwill that can’t be commercialized in traditional ways.

So, four different dynamics that web3 companies can leverage to stimulate value creation:

1. Reduce inequality by redistributing value

2. Use distributed ownership to build stronger businesses

3. Enable broad participation from a wide range of value creators

4. Create entirely new economies to capture value not contained within the traditional economy

Taken together, these 4 dynamics paint a picture of a much more vibrant, healthy and growing economy. I think they also outline themes for long-term value creation from an investor standpoint. I would love to know your thoughts?